A country reports that its inflation rate and unemployment rate have both increased.These changes could be the result of
A) a movement upward along the short-run Phillips curve.
B) a movement downward along the short-run Phillips curve.
C) an upward shift of the short-run Phillips curve.
D) a downward shift of the short-run Phillips curve.
E) a leftward shift of the long-run Phillips curve.

Question

Quizplus · Accepted Answer

An upward shift of the short-run Phillips curve means that for a given level of unemployment, the inflation rate is now higher. This could be because of structural factors such as increases in production costs or changes in government policies. An upward movement along the Phillips curve would imply that inflation increased due to a decrease in unemployment, which is unlikely to happen in the short run.

A Country Reports That Its Inflation Rate and Unemployment Rate